Where this happens, accounting should show the transaction in accordance with its real substance; that is, on the basis of how the transaction affects the economic situation of the firm. This means that accounting may not reflect the exact legal position concerning that transaction. This most frequently applies to leases and hire purchase transactions. Hire purchase is used by businesses to purchase assets in stages. Take the example of a machine being acquired by hire purchase. Legally, it does not belong to the business until the last installment is paid and an option has been taken up by the business to become the owner of the machine. Effectively, the business has used the machine since it first acquired it in the same way as it would have done had it paid for it in full at that time. The substance over form concept says that the business should show the full value of the machine being bought on hire purchase in its financial statements as though it were legally owned by the business (as an asset), and show the full amount still owing to the supplier of the machine separately as a liability. One aspect that is really important to all accountants is to ensure you are a high level of ethical and principles if you want to practice in Australia.
Materiality
The accounting concepts already discussed have become accepted in the business world, their assimilation having taken place over many years. However, there is one overriding rule applied to anything that appears in a financial accounting statement – it should be material. That is, it should be of interest to the stakeholders – those people who make use of financial accounting statements. It need not be material to every stakeholder, but it must be material to a stakeholder before it merits inclusion. You also need to ensure you are up to date with all news that is happening in the accounting and bookkeeping industry
Accounting does not serve a useful purpose if the effort of recording a transaction in a certain way is not worthwhile. Thus, if a box of paper clips was bought it would be used up over a period of time, and a cost is incurred every time someone uses a paper clip. It is possible to record this as an expense every time it happens, but obviously the price of a box of paper clips is so little that it is not worth recording it in this fashion. The box of paper clips is not a material item, and therefore would be charged in full as an expense in the period it was bought, irrespective of the fact that it could last for more than one accounting period. In other words, do not waste time in the elaborate recording of trivial items.If you enjoy the idea of studying accounting topic then read the information on the edna website or visit the official edna course page on the edna myskills website .
Accountants distinguish between what they call revenue expenditure (expenditure on items that are not intended to be kept for very long, such as goods for resale and raw materials; or the benefits of which only last a short time, such as labor costs) and capital expenditure (expenditure on non-current assets, i.e. items purchased to be used in the business, such as machines, motor vehicles, and buildings which are not intended to be resold). The definition of revenue expenditure is unhelpful, given that labor is not kept at all but wages are. You can learn about accounting And Bookkeeping Statutory Regulatory information by clicking the following link
However, if an item is not material, it will always be treated as a revenue expenditure. For example, a stapler would normally be classified as a non-current asset – it is likely to be used for a long time – and, therefore, as an item of capital expenditure. However, in reality, it would be treated as an expense in the period in which it was bought because it is not a material item. Studying Accounting can be a creative way to be an accountant or bookkeeper, you can either study a Diploma in account or a bookkeeping course https://www.edna.edu.au/online-courses/certificate-iv-in-bookkeeping/.
Businesses operate their own individual rules to determine what is material and what is not. There is no law or regulation in Australia that defines these rules – the decision as to what is material and what is not is dependent upon judgment. A business may decide that all items under $200 should be treated as expenses in the period in which they were bought, even though they may be used for the following ten years. Another business may fix the limit at $500. Different limits may be set for different types of items.
Other helpful accounting resources include:
- learn about subsidiary accounts and ledgers
- learn about the roles and responsibilities-of-the-bookkeeper